north america

Is El Salvador’s Bitcoin gambit finally paying off?

The rise in El Salvador’s bond prices “almost defies gravity,” and it may soon have access to Eurobond markets, said Santander Bank.

El Salvador’s controversial $117.5 million Bitcoin investment briefly swung into profitability this past week for the first time in two years. 

This was a milestone of sorts because, until then, not much had gone right crypto-wise for the impoverished Central American nation.

El Salvador still hasn’t come close to making Bitcoin (BTC) a medium of exchange as was anticipated when it made Bitcoin legal tender in September 2021, the world’s first nation to take such a step.

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US senators drill into FTC’s work to track AI attacks on older citizens

The senators asked the FTC chair four questions about AI scam data collection practices to find out if the commission can identify AI-powered scams and address them accordingly.

Four United States senators have written to Federal Trade Commission (FTC) Chair Lina Khan requesting information on efforts taken by the FTC to track the use of artificial intelligence (AI) in scamming older Americans.

In the letter addressed to Khan, U.S. Senators Robert Casey, Richard Blumenthal, John Fetterman and Kirsten Gillibrand highlighted the need to respond effectively to AI-enabled fraud and deception.

Underlining the importance of understanding the extent of the threat in order to counter it, they stated:

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Bitcoin tops Donald Trump, guns in America: Google Trends

Popular terms such as guns, Chuck Norris, health insurance and politics did not even make it to the top 10 in the list.

Amid the growing discussions around Donald Trump, guns and other topics tied to politics and entertainment, Bitcoin (BTC) remains the most Googled term in the United States. 

A search volume comparison based on Ahrefs data revealed that Americans are curious about Bitcoin, with Nevada taking the spot as the “most Bitcoin-crazy state” in the United States. Despite former U.S. President Donald Trump making headlines consistently, he only takes the second position on the list of the most-searched terms in America.

Search volume comparison (U.S. and global). Source: Ahrefs

As shown above, other popular terms following Bitcoin and Donald Trump include breaking news, Elvis Presley and Disney World. Previously popular terms such as guns, Chuck Norris, health insurance and politics did not even make it to the top 10 in the list.

Search comparison of Donald Trump and Bitcoin. Source: Google Trends

In the last 30 days, Google searches for Donald Trump exceeded Bitcoin for just two days — on April 4 and 5 — when reports of the former president’s possible arrest emerged, according to Google Trends data.

State-wide comparison of Bitcoin searches. Source: Google Trends

A state-wise comparison revealed Nevada as the state with the biggest number of “Bitcoin” searches, followed by Miami, California and Washington.

The primary reason for this finding is attributed to lower taxes and local government initiatives to promote innovation, according to Trading Browser. “Nevada’s long-standing gambling respiration might be a contributing factor to the success and high interest in Bitcoin,” the study added.

Related: Binance.US unable to find bank partners in the United States: Report

A new report from the U.S. Department of the Treasury concluded that North Korea and criminals use decentralized finance services to bag illicit profits.

However, as Cointelegraph reported, the Treasury believes that “most money laundering, terrorist financing, and proliferation financing” occurred using fiat currency or outside the digital asset ecosystem.

Magazine: DeFi abandons Ponzi farms for ‘real yield’

El Salvador removes all taxes related to tech innovation for economic growth

Technology innovations such as software programming, coding, apps and AI development, and computing and communications hardware manufacturing will be exempted from taxes in El Salvador.

El Salvador, the first country to establish Bitcoin (BTC) as a legal tender, has decided to eliminate all taxes on technology innovations. The move runs parallel to establishing the National Bitcoin Office (ONBTC) of El Salvador, also known as “the Bitcoin office.“

When legalizing Bitcoin on Sept. 7, 2021, Salvadoran President Nayib Bukele saw the technology as a means to counter hyperinflation and dependence on the U.S. dollar. Over the past 18 months, El Salvador restrategized Bitcoin investments and utilized capital gains in numerous instances to rebuild the nation.

Moving ahead with the strategy, Bukele believed in winding down tax requirements to expedite technological development. As promised, on April 1, Bukele officially sent a bill to Congress — effectively eliminating all income, property, and capital gains taxes on technology innovations “such as software programming, coding, apps and AI development, as well as computing and communications hardware manufacturing.”

Supporting this initiative is the establishment of the Bitcoin office, a regulatory body for conducting joint initiatives with Bitcoin entrepreneurs and companies. According to Asociación Bitcoin de El Salvador (Bitcoin Association of El Salvador), ONBTC aims to “position the country in the world as a technological and economic power.”

In addition to attempting a financial comeback, Bukele’s ongoing efforts to reinvent El Salvador include promoting tourism, countering terrorism and building regional business hubs.

Related: El Salvador’s Bitcoin strategy evolved with the bear market in 2022

At the start of 2023, El Salvador passed legislation providing the legal framework for Bitcoin-backed bonds — Volcano Bonds.

The terminology of the Volcano Bonds is derived from Bitcoin City’s location, which is set to become a renewable crypto-mining hub powered by hydrothermal energy from the nearby Conchagua volcano.

Magazine: What it’s actually like to use Bitcoin in El Salvador

Can Canada stay a crypto mining hub after Manitoba’s moratorium?

Local stakeholders believe that a crypto mining moratorium might actually mean the beginning of a new dialogue between the government and the industry.

Canada has remained a peculiar regulatory alternative to the neighboring United States in regard to cryptocurrency. While its licensing process has become more stringent than in some countries, Canada was the first to approve direct crypto exchange-traded funds. State pension funds have invested in digital assets, and crypto mining firms have moved to the country to take advantage of the cool temperatures and cheap energy prices.

But the gold rush for miners in Canada may be slowing down. In early December, the province of Manitoba — rich in hydroelectric resources — enacted an 18-month moratorium on new mining projects.

This move resembled a recent initiative in the U.S. state of New York that stopped the renewal of licenses for existing mining operations and required any new proof-of-work miners to use 100% renewable energy.

These developments shouldn’t be brushed off as isolated cases. Both took place in relatively cool regions with significant hydroelectric energy profiles, so tightening the screws in Manitoba doesn’t seem optimistic for less-energy-sustainable regions.

Could this change Canada’s status as a haven for miners?

The natural predisposition

In October 2021, the price of Bitcoin (BTC) towered above the $60,000 mark. By that time, Canada had become the fourth-largest destination for BTC mining in the world, with 9.55% of all Bitcoin being mined in the country (as opposed to 1.87% a year earlier). The nation effectively filled a gap left by the crackdown in China, which almost nullified the mining activity in the country by 2021 — although the United States won the most from the crackdown, rising from sixth place to first place in terms of Bitcoin hash rate.

A technician at a Bitcoin mining operation. Source: Paul Chiasson/The Canadian Press

The Canadian government didn’t have to make any particular efforts to draw the interest of global miners after the fall of China. The country has two obvious advantages to offer everyone: its cool climate and abundance of hydropower. A 2021 study by DEKIS Research Group at the University of Avila ranked Canada as 17th in the world in terms of its sustainable mining potential, which is higher than the United States (25th), China (40th), Russia (43rd) or Kazakhstan (66th).

The high score was made possible by a combination of low electricity prices ($0.113 per kilowatt hour), low average temperature (−5.35 Celsius) and a high Human Capital Index (0.8) 

Mining ban to last for 18 months

Regardless of the country’s attractiveness to crypto miners, the province of Manitoba, which enjoys the second-lowest energy prices in Canada, set an 18-month moratorium on new mining operations in November. The decision was justified on the grounds that new operations might compromise the local electricity grid. As Manitoba Finance Minister Cameron Friesen told the CBC:

“We can’t simply say, ‘Well, anyone can take whatever [energy] they want to take and we’ll simply build dams’. The last one cost $13 billion if you priced in the [transmission] line.”

Friesen revealed that recent requests from 17 potential operators would require 371 megawatts of power, which is over half the power generated by the Keeyask generating station. According to him, the demand from new miners would total more than 4,600 megawatts when including other, less formal, inquiries. There are currently 37 mining facilities in Manitoba, and their operations won’t be affected by prohibition.

Recent: Congress may be ‘ungovernable,’ but US could see crypto legislation in 2023

Of further concern was the relative lack of jobs that cryptocurrency miners provide. Friesen said that cryptocurrency miners “can be utilizing hundreds of megawatts and have a handful of workers.”

The new normal? 

Aydin Kilic, president and chief operating officer of Canadian crypto mining firm Hive Blockchain, doesn’t see the Manitoba case as an isolated event. In early November, the firm managing electricity across the Canadian province of Quebec, Hydro-Québec, requested the government release the company from its obligation to power crypto miners. However, the situation does not imply a new normal either, Kilic told Cointelegraph:

“These moratoriums are in place to give the utilities time to evaluate the existing crypto-mining operations. The new normal in Canada would involve crypto miners working with utilities to balance the grid or recycle energy in thoughtful ways, with a focus on sustainability.”

Given that Hive Blockchain is using the heat from its 40,000-square-foot facility in Quebec to heat a 200,000-square-foot swimming pool manufacturing plant, Kilic sees the recent developments as an opportunity for local power suppliers to figure out their approach to mining operators.

A relief map of Manitoba showing the significant water resources of the province. Source: Carport

Canadian utility companies have been bombarded with inquiries from offshore entities looking to take advantage of Canada’s cool climate and ample hydro energy resources. This, in turn, has been overshadowing the demand from domestic digital asset miners, who are focusing on long-term partnerships, he emphasized:

“We hope that the utilities can determine from their onboarding process which clients are well-funded and set up to be long-term clients with a track record undertaking sustainability initiatives.”

Kilic said it takes a lot of investment to build out the data centers. In that sense, a sound vetting process requiring miners to meet certain capital conditions would vastly reduce the number of bonafide applications. In his view, that would commit to grid balancing and sustainability as well.

Andrew Webber, founder and CEO of crypto-mining-as-a-service firm Digital Power Optimization, told Cointelegraph that the moratorium in Manitoba wouldn’t affect the attractiveness of Canada as a mining destination due to more fundamental factors such as the rule of law and the vast amounts of excess power to be consumed by tech-efficient miners: 

“Energy companies using Bitcoin mining as a tool to help optimize their generation assets will be a growth area for mining, so we think more and more of this will be done in places where you’re actually curing an energy problem.”

Webber stated that Bitcoin miners don’t use the power that is in high demand due to simple price factors. They might even make the grid more flexible and resilient by providing a profitable load that can easily be shut down when grid-based energy demand increases. Kilic confirmed this notion, claiming that his company can shut down within seconds when the grid is stressed.

Recent: Trust is key to crypto exchange sustainability — CoinDCX CEO

Only time will tell if the lawmakers and regulators in Manitoba will agree with that reasoning; however, stakeholders remain optimistic. Webber expects to see more mining both in Manitoba and New York “over a decade,” while, in Kilic’s words, Canada has some of the best geography for digital asset infrastructure worldwide and shouldn’t miss out on the opportunity to build out that infrastructure.

Crypto regulation world: How laws for digital assets changed in 2022

While regulations were once seen as hurdles to crypto adoption, they are now perceived as the fastest way to attain global mainstream adoption.

Effective regulations are one of the key gateways to cryptocurrency’s mainstream adoption. Due to greater compliance, crypto businesses saw broader acceptance from regulators worldwide. While the crypto ecosystem was awarded countless operational licenses and exposure to new markets, the fall of Terraform Labs, FTX and Celsius, among others, had a negative impact on the industry’s reputation with investors and regulators alike.

As we look back on 2022 and all it brought for the cryptocurrency industry, we’re highlighting how the regulatory landscape has changed for cryptocurrencies and the blockchain industry as a whole.

North America

China’s blanket ban on crypto mining and trading from late 2021 positioned the United States as the torchbearer for crypto disruption by default. The U.S. is not only home to the biggest crypto ATM network, but is also is the highest contributor to the Bitcoin (BTC) hash rate.

Out of all crypto sub-ecosystems, nonfungible tokens (NFTs) took center stage in U.S. politics. What can be considered as a clear win for crypto, the Federal Election Commission (FEC) permitted the use of NFTs for political campaign fundraising incentives.

For many regulators, the collapse of FTX and the arrest of former CEO Sam Bankman-Fried were perceived as a representation of the wrongdoings of the entire crypto community. As a result, it helped recement anti-crypto sentiment among many U.S. politicians, such as Representative Brad Sherman. However, Representative Tom Emmer sided with the crypto community as he pointed out the community’s contribution to tracking Bankman-Fried’s illegal activities.

Rep. Brad Sherman during the FTX hearing in front of the U.S. House Committee on Financial Services. Source: YouTube

Citing the FTX collapse, the Canadian Securities Administrators — an umbrella group of securities regulators across Canada — banned crypto leverage and margin trading to protect investors. In addition, Canadian energy provider Hydro-Québec rolled out plans to reallocate energy supplied to crypto mining firms, citing the high energy demands anticipated during the harsh Canadian winter.

Similarly, U.S. regulators introduced the Crypto-Asset Environmental Transparency Act to direct the Environmental Protection Agency to report on the energy use and environmental impact of crypto miners.

Central and South America

Farther south, El Salvador still retains its position as the most significant contributor to mainstreaming Bitcoin worldwide. While many pointed out the unrealized losses owing to falling Bitcoin prices faced by the country, President Nayib Bukele announced a new BTC investment strategy in which the country would purchase 1 BTC per day starting from Nov. 17, 2022.

Furthermore, in November, Economy Minister Maria Luisa Hayem Brevé introduced a bill confirming the government’s plan to raise $1 billion and invest it into the construction of a “Bitcoin city.”

Despite a slow start, Brazil saw the introduction of a pro-crypto regulation. Late last year, before former President Jair Bolsonaro left office, a bill that sought to legalize the use of crypto as a payment method within Brazil was signed into law. Brazil most recently issued a Payment Institution License to Crypto.com, allowing the crypto exchange to continue offering regulated fiat wallet services to Brazilians.

Asia

After careful consideration, numerous Asian regulators softened their anti-crypto stance and chose to allow crypto businesses to run operations. While China loosened its grip on its crypto permaban, India has implemented a new tax regime for crypto.

In the case of China, the Shanghai High People’s Court issued a ruling stating that Bitcoin is subject to property rights laws and regulations. With the court recognizing value, scarcity and disposability in the asset, Bitcoin owners received the right to compensation in a case involving an unpaid loan.

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India imposed two new crypto tax policies at the start of the year — one imposing a 30% tax on crypto profits and the other imposing a 1% tax deduction at source on every crypto transaction. The laws had a negative impact on local trading volumes as investors continued to hold their assets in hopes of better regulations. India, during its G20 presidency, which will last until Nov. 30, 2023, has plans to pursue the development of standard operating procedures for cryptocurrencies.

Pakistan’s central bank, on the other hand, signed new laws to expedite the launch of an in-house central bank digital currency (CBDC) amid hyper inflation concerns.

Just like in the United States, the fall of Terraform Labs left a bad taste in South Korean regulators’ mouths. For the island nation, the majority of 2022 was spent tracking down the bad actors responsible for investor losses. Moreover, the country’s 2021 implementation of Know Your Customer requirements saw a drastic reduction in hacking activities throughout 2022.

Europe and the Middle East

The Russia-Ukraine war indirectly showcased cryptocurrency’s prowess in serving the unbanked. As millions lost access to their life savings, cryptocurrencies came into the forefront as a savior.

Displaced citizens got help through crypto donations, while Russians fleeing the country used it to circumvent their home country’s newly introduced currency controls. Just two weeks into the war, crowd funding helped raise over $108 million for Ukrainian war relief. Another organization raised $54 million worth of crypto funds to procure vests, scopes and unmanned aerial vehicles for Ukrainian fighters.

The European Union’s Committee of Permanent Representatives approved the Markets in Crypto-Assets framework, which aims to create a consistent regulatory framework for cryptocurrencies among European Union member states.

The International Monetary Fund, a major financial agency of the United Nations, called for increased regulation of Africa’s crypto markets. The Central African Republic reportedly passed a bill to legalize the use of cryptocurrencies in financial markets.

The United Kingdom sought regulatory amendments to place the crypto industry under tighter scrutiny. Reacting to the FTX collapse, the U.K.’s HM Treasury issued guidelines for the Financial Conduct Authority to monitor the operations and advertising of crypto companies in the country. This further influenced an upcoming 2023 legislation to restrict crypto services from abroad from operating in the U.K.

South Africa’s financial regulator, the Financial Sector Conduct Authority, updated the country’s 2002 Financial Advisory and Financial Intermediary Services Act to declare crypto as a financial product subject to financial services law.

Nigeria banned ATM cash withdrawals over $225 (100,000 nairas) per week to enforce the use of its CBDC, the eNaira. African crypto exchange Yellow Card received regulatory approval to expand its services across the African continent.

While the Dubai Virtual Assets Regulatory Authority issued numerous operational approvals to crypto business in 2022, it had to revoke the Minimum Viable Product license from FTX MENA.

Most recently, Australia overtook El Salvador to become fourth largest crypto ATM hub after the United States, Canada and Spain. Australian financial regulators are carrying forward their efforts from 2022 to create a regulatory framework for stablecoins.

Africa and Oceania

While the above-mentioned triumphs highlight just the cream of regulatory accomplishments, the crypto ecosystem made significant strides throughout the year. With the understanding that regulations are key drivers for mass adoption, crypto firms with robust compliance initiatives are setting the stage for mainstream adoption as we step into 2023.

Check out Cointelegraph’s crypto roundup of 2022 and what it means for the community in 2023.

US Election update: Where do the pro-crypto candidates stand ahead of the election?

Crypto has been highly visible in this election cycle thanks to polls and political action committees. This is a new and unaccustomed role for it with unknown results.

The 2022 midterm elections will be held in the United States on Nov. 8. Thirty-four senators and all 435 members of the House of Representatives will be running. According to media reports, cryptocurrency lobbyists and political action committees have poured millions of dollars into select campaigns, and extensive polling has shown crypto to be on voters’ minds.

Fundraising and polling are normal parts of the American political system, but the numbers associated with crypto may have raised some eyebrows. Sam Bankman-Fried called $1 billion his “soft ceiling” for 2022 election contributions, for example. Even though he backpedaled on some of his intentions, he remains the sixth-largest donor in this election cycle. There are numerous crypto-related political action committees as well. According to Bloomberg, as of Oct. 19, crypto-affiliated donors had spent more than donors to such traditional recipients as defense and big pharma.

A poll commissioned by Grayscale between Oct. 6 and Oct. 11 shows that 38% of voters surveyed will be “considering crypto policy positions.” A poll commissioned by the Crypto Council for Innovation at roughly the same time showed that 45% of voters “want legislators to treat crypto as a serious and valid part of the economy.”

Why all the excitement?

Crypto is making continual inroads into daily life, even in the current unfavorable market conditions. Nonetheless, someone with some distance from the industry may be surprised to hear that 45% of potential American voters have any opinion about crypto at all. 

But, 40 million Americans own crypto, and they take it personally, Cornell Law School faculty member and Foley & Lardner partner Patrick Daugherty told Cointelegraph:

“Does ‘crypto policy’ resonate with voters as much as inflation and other headline news? Probably not, but then again many voters are buying crypto as a hedge against inflation.”

Furthermore, “Crypto is the future of money, which is important to every American,” Daugherty said. 

Martin Dobelle, one of the three co-founders of political software company Engage, agreed. “The average person cares more about this issue than you might expect,” he said. Dobelle attributed voter interest in crypto to a generally positive attitude toward technology, especially among the young. He told Cointelegraph:

“Voters are very pro-technology, pro-innovation and they […] might not know the specifics of crypto legislation or tech legislation writ large, but they do have kind of an intuitive sense of […] what policy thinking that moves in the direction of embracing technology and innovation would look like.”

Engage is a public benefit corporation with a mission to increase public participation in the political process. Among its activities, Engage raises funds in cryptocurrency for 16 pro-crypto candidates.

What are we doing here?

The next logical question is what crypto voters will accomplish. Pro-crypto House members like Minnesota Republican Tom Emmer and Oregon Democrat Ron Wyden expect to win their races easily, while Ohio Democrat Tim Ryan is facing off against equally pro-crypto Republican JD Vance. Not only that, the crypto regulation situation is relatively under control, with bills already in the House and Senate.

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Hogan Lovells partner Aaron Cutler saw a limited connection between the election and upcoming crypto regulation. “I don’t think it’s a question of political support, but more a question of policy priorities,” he said, adding:

“This is one of the reasons we saw certain legislation introduced this Congress — not because it was going to be passed and enacted into law, but because Members want to show leadership and stake out a bit of legislative turf.”

On the other hand, seeing that existing bills come up for voting faster is probably one of the effects greater political support would have.

The other effect of voting is keeping some candidates out of office. Attacks against crypto are perceived by many American voters “as threats to economic security and personal liberty,” Daugherty said.

Willamette University law professor Rohan Grey was having none of the single-issue votings. Pollsters “aren’t saying that they [pro-crypto candidates] are good people,” he said. Grey saw voting as important as an action. “Give the impression of people coming to your cool party,” he said. 

To Dobelle, the increase in political activity surrounding crypto was significant as a sign that crypto is moving into the middle of the political spectrum, which he said is “past due.”

Whose party is it?

The bipartisan/nonpartisan nature of crypto is often commented on, but there are clear divisions in the crypto world. First, crypto skews right. This can be seen, among other places, in the Crypto Action Network politicians’ scorecards. That organization has graded 144 U.S. legislators on their crypto support. (The remaining nearly 400 lawmakers presumably have no record of crypto.) The scorecards gave Republicans an average grade of 3.4 out of 4, converted from A-F marks, while Democrats received an average of 2.1. 

Bipartisanship legislation is full of “sensible compromises,” according to Daugherty, and has a better chance of passing in the current polarized environment. Cutler concurred, although he added that his firm foresees “Republican-led committee oversight and investigations of agencies with jurisdiction over digital assets and cryptocurrency.”

Grey, an adherent of Modern Monetary Policy, had a simple explanation for crypto’s right leanings based on its origins in libertarian economics and the Cypherpunks:

“The problem being solved by crypto is an inherently right-wing one.”

Grey saw one only result from any foreseeable election outcome: Crypto’s “handover to big business.”

Recent: The state of crypto in Southern Europe: Malta leads the way

Whether those claims are accepted or not, they point to an old, basic dichotomy: Crypto as the Wild West — alternative and unregulated money — and crypto regulated and integrated into the economic mainstream. In this light, the 2022 midterm elections are a rehash of a familiar trope and some slight movement toward its resolution.

Digital Chamber of Commerce vice president of policy Cody Carbone wrote in one of his many tweets, “Crypto has not yet become a mainstream part of candidate platforms. Given user adoption trends, that WILL change for the 2024 election. It’s up to voters and industry, to make sure our voices are heard.”

Low hash price, soaring energy costs spell tough Q3 for Bitcoin miners

The third quarter of 2022 has not been any kinder to Bitcoin mining operators in North America and Europe.

Energy problems in North America and Europe and prevailing market conditions have spelled another bleak quarter for Bitcoin (BTC) mining operators on both continents.

The latest Q3 mining report from Hashrate Index has highlighted several factors that have led to a significantly lower hash price and higher cost to produce 1 BTC.

Hash price is the measurement used by the industry to determine the market value per unit of hashing power. This is measured by dividing the dollar per terahash per second per day and is influenced by changes in mining difficulty and the price of BTC.

As Hashrate Index reports, Bitcoin’s hash price was afforded some reprieve in the middle of Q3 as heat waves during the American summer led to a drop in hash rate, which corresponded with a slight BTC price recovery.

However the price of Bitcoin dropped below $20,000 once again and hash rates climbed to new all time highs in September, leading to the hash price slipping closer to all-time lows.

Miner profit margins were further threatened by rising energy costs in North America and Europe. The latter has been particularly hard hit by a “combination of mis-managed renewable energy policies, under investment in oil and gas, nuclear plant decomissionings, and Russia’s war with Ukraine,” which have sent energy prices sky-high.

Related: Top 3 reasons why Bitcoin hash rate continues to attain new all-time highs

American miners have had to contend with the average cost of industrial electricity increasing 25% from $75.20 a megawatt hour to $94.30 per megawatt hour from July 2021 to July 2022. This has also had an effect on hosting service providers that are increasing their power prices in hosting contracts.

As hash price has dropped, some mining operators with mid-range equipment are facing down reaching breakeven costs margins. In the past, retail miners have either abandoned or sold rigs that are no longer profitable to mine.

Liquidating these assets is also becoming more difficult as Bitcoin mining values have been in decline throughout 2022. Rig prices dropped significantly in May and June but “flattened” in August and September according to the report, while the picture is still bleak:

“Old-gen machines like the S9 experienced a precipitous drawdown at the end of June amid Bitcoin’s freefall to $17.5k. With mining economics in the dumpster, the S9 and similar rigs have become unviable except in the cheapest energy markets.”

Publicly-traded mining firms have also faced increasing pressure with increasing interest rates and greater difficulty acquiring lines of credit. This has led to some firms turning to equity fundraising, which has the downside of diluting shareholders at lower stock prices.

However, these at-the-market offerings allow for quick capital raises, which can help fund continued expansion and operating costs through the ongoing bear market.

Miners have also had to sell BTC holdings in order to keep production going in 2022. However this rate has “slowed progressively” through the third quarter and public miners have sold fewer BTC than their monthly production in August and September for the first time since May.

Hashrate Index also cautioned that Q3 could be a precursor for more tough times for the mining industry with the potential for further distressed asset sales, bankruptcies and miner capitulation as the year comes to a close.

The Caribbean is pioneering CBDCs with mixed results amid banking difficulties

Emtech’s Cadet talks about CBDCs in emerging markets as the U.S. Congress and United Nations hear about the traditional banking crises.

The Caribbean region is in a tough situation for banking. The 35 nations comprising the region face challenges common to many tiny economies, such as dollarization and dependence on foreign trade and remittances. In addition, the increasingly common banking practice called de-risking is taking a heavy toll. So, it is probably no coincidence that the region is also at the forefront of digital currency adoption. 

Carmelle Cadet, the founder and CEO of banking solutions company Emtech, is a native of Haiti who has experience working with central banks in Haiti and Ghana. Her company is also a member of the new Digital Dollar Project Technical Sandbox Program that is exploring aspects of a United States central bank digital currency (CBDC). Cadet spoke to Cointelegraph about her experiences in the Caribbean and the United States. She said rolling out functioning CBDCs in the region is “a long game.” It is easy to see why.

The risks of banking in the Caribbean

The Financial Action Task Force (FATF) lists countries that are under special monitoring for money laundering or other illegal activities. Although only four countries in the region were on the so-called gray list as of June, the list seems to cast a pall over the region as a whole. Because of it, extra due diligence efforts are required when large international banks provide services such as settlement to smaller local banks in those countries in a process called correspondent relationships. 

Additional due diligence drives up international banks’ costs of doing business. Banks often choose to sever ties with banks in gray-listed countries rather than pay the increased costs. That decision is referred to as de-risking. Some Caribbean countries have lost 50% of their correspondent relationships, with severe consequences for their economies and societies.

The United States House of Representatives Financial Services Committee held hearings titled “When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for Ensuring Financial Access” on Sept. 14. Prime Minister of Barbados Mia Amor Mottley and Prime Minister of Trinidad and Tobago Keith Rowley attended the hearings.

Mottley described what banking services are like in the region:

“When we were growing up, opening a bank account was part of our rites of passage in becoming an adult. Today […] we spend weeks, and businesses that come into our region spend weeks and months, just to open a bank account.”

Ten days after the Congressional hearings, on Sept. 24, Bahamian Prime Minister Philip Davis brought the issue of de-risking before the United Nations General Assembly. “Why are all the countries being targeted small and vulnerable and former colonies of European states?” he asked. The Bahamas is not currently on the gray list. 

CBDCs to the rescue?

According to the Atlantic Council CBDC tracker, three CBDCs have been launched in the Caribbean region: the Bahamas’ Sand Dollar, Jamaica’s Jam-Dex and the Eastern Caribbean Central Bank DCash in seven of its eight member states. 

The council lists Haiti’s Digital Gourde as under development. Cadet said Emtech and its Haitian partner HaitiPay presented a proof-of-concept for a CBDC at the Haitian Embassy in Washington on May 5.

Cadet, who immigrated to the U.S. in her youth, was an executive in the IBM blockchain division when the Bahamas made its request for proposals for the Sand Dollar. She was “by luck a little bit in the front seat.” In 2019, when Haiti was “making the rounds with a roadshow” to develop its CBDC, “I thought ‘if the Bahamas can do it, why not Haiti?’” Cadet said. She added, “Kudos to the central bank governor for seeing the possibilities.” She left IBM and founded Emtech.

The first financial technology companies appeared in Haiti in 2010, after the earthquake that ravaged the country, and technologies relying on mobile wallets took the lead, Haitian Central Bank Governor Jean Baden Dubois said in 2021. Dubois said mobile telephone penetration was about 60% in 2008 and “likely higher in 2021.”

Emtech’s proposed CBDC design functioned online and through mobile telephone unstructured supplementary service data. The rollout of a Haitian CBDC would include device distribution through a partnership with a charity, Cadet said. The use of telecommunications rather than data networks to support CBDC functions is a hallmark of emerging economies, she added.

Dubois said the Haitian Central Bank saw a CBDC as a means to achieve greater policy efficiency and increased transparency, which would help the FATF gray-listed country meet Anti-Money Laundering/Combating the Financing of Terrorism standards.

“Dollarization undermines the central bank and its mission of stability,” Cadet said. “Using CBDCs for cross border payments would provide better liquidity and visibility on reserves.”

The peculiarities of emerging markets

Cadet said there are a number of ways in which a CBDC design for an emerging market will differ from one intended for a developed market. Developed markets can “afford to go slower,” she said, as they work toward a real-time settlement, while in emerging markets, CBDCs have a more pressing mission of inclusion. 

Related: UK Startup Puts Haitian Farmers and Their Crops On the Blockchain

Emerging markets have “less baggage,” she continued, so fintechs can thrive. In developed markets, commercial banking can make adoption easier, but the CBDC has more legacy systems to integrate with.

Be that as it may, it is not clear how much success CBDCs are enjoying in the Caribbean. The Sand Dollar, commonly considered the first CBDC when it launched in 2020, had only about $300,000 worth of electronic currency in circulation and 30,000 digital wallets in July 2022, with about 845 merchants accepting it. The Bahamian government makes regular efforts to promote it.

DCash, introduced in April 2021, crashed in January and was down for almost two months. A spokesperson for Grenada-based conglomerate Geo. F. Huggins & Co., the first company to accept a DCash payment, said during the outage that the CBDC represented a “minimal” portion of its sales.

Cadet said her company had been in talks with the Haitian Central Bank “to understand licensing and risk” for about a year before its proof-of-concept presentation and has been in touch with the bank since then. She said the company is now waiting for the central bank to issue a request for proposals for vendors.

El Salvador’s Bitcoin decision: Tracking adoption a year later

El Salvador made history last year in September by making BTC a legal tender. One year later, the falling BTC prices and delayed Volcanic bonds have fueled skepticism.

El Salvador, the small Central American nation that made history just over a year ago when it made Bitcoin (BTC) legal tender, recently marked its first year of BTC adoption.

The Salvadoran government touted BTC as a tool to attract foreign investment, create new jobs and cut reliance on the United States dollar in the country’s economy at the time of adoption. Many BTC proponents and the libertarian community rallied behind the small nation despite mounting pressure from global organizations such as the World Bank and International Monetary Fund (IMF) to remove BTC as a legal tender.

A lot has changed over the past year since El Salvador became the first “Bitcoin nation.” Enthusiasm and public interest rose immediately after the recognition of BTC, with the price surging to new highs.

Salvadoran President Nayib Bukele joined the growing league of Bitcoin proponents to buy several market dips and even reaped the benefits of their BTC purchase in the early days as the country built schools and hospitals with its profits.

As market conditions turned bearish, however, the frequency of BTC purchases slowed down, and the president, who was often seen interacting with the crypto community on Twitter and sharing future Bitcoin endeavors, cut back his social media interactions significantly.

El Salvador has purchased 2,301 BTC since last September for about $103.9 million. That Bitcoin is presently worth roughly $45 million. The most recent purchase was made in mid-2022 when the nation bought 80 BTC at $19,000 a piece.

As the price of BTC tanked, critics who have long been raising concerns about a crypto bubble felt validated, with several comments along the lines of “I told you so.” However, market experts believe El Salvador’s BTC experiment is far from a failure.

El Salvador’s Bitcoin Volcanic bond, a project meant to raise $1 billion from investors to build a Bitcoin city, has already been delayed on numerous occasions now and skepticism is growing not just around the project but on the overall BTC adoption itself.

Samson Mow, a Bitcoin entrepreneur who played a key role in designing the Bitcoin Volcanic bond — also called the Volcanic token — told Cointelegraph that contrary to common outside perceptions, El Salvador is building through the bear market. He noted that the Volcanic bond was delayed due to several reasons and is currently awaiting the passage of a digital securities law. He explained:

“We’re still waiting on the new digital securities laws to go to congress, and once passed, El Salvador can start the capital raise for the Bitcoin Bonds. I’m hopeful that it happens before the end of this year. Much like Bitcoin companies, El Salvador is focused on building through the bear market. I can’t see President Bukele not stacking more at these prices.”

The BTC price recorded a new all-time-high of $68,789 just a month after El Salvador’s adoption on Nov. 10. Since then, however, the price has tanked by over 70% and currently trading at around $19,000. Many critics believe that the future of the Volcanic bond and its native token is highly dependent on the crypto market and thus it could only gain traction during bull markets.

Paolo Ardoino, chief technical officer at Bitfinex, told Cointelegraph that the Volcanic tokens would generate interest from investors irrespective of the market conditions, he explained:

“The Volcanic token will be the first of its kind. While investor appetite for new offerings is typically greater during a bull market, we are confident that the unique proposition that this token represents will garner significant interest regardless of market conditions. The Volcanic token has widespread support in the Bitcoin community and there is manifestly a great appetite for the offering regardless of if we are in a bear or bull market.”

Bitfinex is the key infrastructure partner of the El Salvador government responsible for processing transactions from the sale of Volcanic tokens. 

Bitcoin adoption boosted remittance and tourism

While critics have called El Salvador’s Bitcoin experiment a failure since the start, proponents see it as a revolution of sorts and believe El Salvador’s adoption could create a domino effect for other nations with similar financial challenges such as a high number of unbanked citizens and significant remittance volumes. 

Bukele has previously mentioned that the primary focus of recognizing BTC was to offer banking services to more than 80% of unbanked Salvodrans. Within six months of the law passing, the country’s national Bitcoin wallet managed to onboard four million users, ensuring that 70% of the unbanked population got access to payment and remittance services without having to go to a bank.

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Aarti Dhapte, a senior research analyst at Market Research Future, told Cointelegraph that El Salvador’s BTC adoption has proven a success on several fronts, be it banking the unbanked or boosting tourism:

“We should accept that the digital currency has helped the Central American nation of El Salvador rebuild its tourism industry, despite the country still having difficulty enduring the long crypto winter. According to information from the Ministry of Tourism, El Salvador’s spending on travel has increased by 81% in the post-pandemic period. In 2021 the nation welcomed 1.2 million visitors and 1.1 million during the first half of 2022.”

Statista data shows that more than 9% of El Salvador’s GDP is made up of the tourism industry, so a near doubling of tourism is a significant boon for the country.

Share of tourism in El Salvador’s GDP. Source: Statista

Apart from tourism and offering financial services to the unbanked, BTC adoption has also proven beneficial in terms of cross-border remittances, cutting transaction costs significantly.

The El Salvador Central Reserve Bank estimates that from January to May 2022, remittances from citizens residing abroad totaled more than $50 million. The adoption of Bitcoin and the Chivo wallet, an initiative supported by the government of El Salvador, helped boost Lightning Network transactions by 400% in 2022.

The downsides of Bitcoin adoption

The biggest downside of El Salvador’s Bitcoin adoption has been macroeconomic factors that have led to a decline in BTC price along with the amount of pushback it has gotten from around the world. The pushback wouldn’t matter in a bull market, but being a small nation-state with financial challenges, the country cannot afford to be on bad terms with international monetary organizations. 

Right now, the vast majority of El Salvador’s Bitcoin was purchased at a higher value than it currently enjoys. Bitcoin has been tracking closely with traditional assets, like the stock market — particularly tech stocks. They, too, have taken a beating this year as the world tries to cope with the aftermath of pandemic-related government handouts.

Beyond the price of Bitcoin, the bigger problem for El Salvador is how the international financial world views the move.

The country’s move toward Bitcoin has limited the country’s access to traditional financial markets, causing Bukele some real problems in financing the repayment of its bond obligations. Moody’s, earlier this year, credited disagreements about Bitcoin as a reason El Salvador was having difficulty coming to terms with the IMF.

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Richard Gardner, CEO at institutional infrastructure service provider Modulus, told Cointelegraph that maybe in five years, Bukele’s decision won’t look that bad, but currently, it’s controversial:

“Bukele’s move to Bitcoin doesn’t look wise. Even with high inflation for the USD, Bitcoin has ultimately failed as an inflation hedge, given its dip. However, we’re looking at a one-year snapshot during a recession. For a country like El Salvador, access to funding through organizations like the IMF is vital. That makes Bukele’s Bitcoin gambit difficult to defend.”

El Salvador’s future depends a lot on the success of the delayed Volcanic bonds, which could bring billions in revenue and set a precedent for others to follow. Until the launch of the bond, the outside world will continue to measure its success based on its BTC purchases.